Telecom Italia SpA's (TIT.MI) core shareholders are considering a bond issue to pay off more than EUR2 billion of debt after agreeing to renew their pact for three years, according to Italian news reports Saturday.

The idea of a bond would replace an earlier one for a capital increase to pay back EUR2.6 billion of debt owned by Telco, the holding company through which the five shareholders control a 24.5% stake in Telecom Italia, Corriere della Sera newspaper said.

The bond would be for institutional, rather than retail, investors, it said without naming its sources.

A mandate for the bond issue had yet to be made because not all of the shareholders had been fully consulted, it said.

The idea would be discussed at the shareholders' next meeting, it added.

The shareholders also agreed to renew their pact for three more years, both Corriere and Il Sole 24 Ore, a business daily, reported.

The agreement would end speculation about the fate of Telefonica SA (TEF.MC) as the biggest single shareholder in the Italian telecommunications giant.

After intense talks held this week, Telefonica and the four other core shareholders agreed to renew their pact when it expires in April 2010.

The shareholders were to come to an agreement by Oct. 28. Insurer Assicurazioni Generali SpA (G.MI), bank Intesa Sanpaolo (ISP.MI), merchant bank Mediobanca SpA (MB.MI) and the Benetton family are the other four shareholders.

One of the conditions to the pact's renewal would be to grant shareholders the right to leave the pact after 18 months of its renewal, Il Sole 24 Ore said.

Through Telco, Telefonica has a 10% indirect stake in Telecom Italia.

Recent news reports had spoken about the shareholders being dissatisfied with Telecom Italia's performance and accusing Telefonica for doing nothing about it.

Italian politicians had also raised fears about a foreign company having control over the country's fixed-line network run by Telecom Italia because they considered it a strategic asset.

Telefonica has repeatedly said its stake in Telecom Italia is part of a long-term industrial alliance.

-Gilles Castonguay, Dow Jones Newswires; +39 02 5821-9908; gilles.castonguay@dowjones.com